/

Nintendo treading on shaky ground as new mobile game takes ‘gacha’ global

by Yuji Nakamura

Bloomberg

Nintendo Co. found out with its first smartphone game it’s tough to get people to pay $10 even if the draw is Super Mario. With its second mobile title, the Japanese powerhouse is taking a different approach that is potentially more lucrative — and much more controversial.

“Fire Emblem,” available Thursday for Apple Inc. and Android devices in 39 countries, costs nothing to download and play, but lures users into spending money to unlock special in-game items. The technique is called gacha in Japanese and it has all the controversy the English reading of the word implies. It’s extraordinarily profitable in Japan — but even here it has raised concerns from regulators who say it can be addictive and manipulates people’s gambling spirit.

The game rose to No. 4 in Japan’s iOS revenue rankings after its release, according to researcher Sensor Tower. Partner DeNA Co. soared as much as 7.9 percent.

Nintendo is well aware of the controversy.

Its late president, Satoru Iwata, objected to the gacha business model used by many of his competitors in 2012, saying it cannot be the basis for a “long-lasting relationship with our customers.” That approach was consistent with the Kyoto-based company’s corporate image: It’s the game industry’s answer to Walt Disney Co., marketing family-friendly characters like Mario and steering clear of the thugs and assassins so popular elsewhere.

Yet over the years, Nintendo’s ethical resolve has been whittled away by investors pushing for more success in the fast-growing smartphone market. After a lackluster December debut for “Super Mario Run,” its first mobile game, the company is changing gears and adopting techniques that have been so profitable for rivals like CyberAgent Inc. and Mixi Inc.

“Nintendo opened Pandora’s box,” said Serkan Toto, founder of Tokyo-based consultant Kantan Games Inc. “The gacha mechanic in “Fire Emblem” seems to be a key element and vital to progression by players, just like in many other mobile hits from Japan.”

Gacha is the most prized of the dark arts that Japanese game-makers have used to make their country the most lucrative mobile gaming market per user in the world. There are variations called “event gacha” and “consecutive gacha,” but the basic idea is that players are asked to spend money without knowing what they’re buying ahead of time, unlike in the popular games of the West.

In “Fire Emblem Heroes,” as the mobile version is officially known, players can win orbs through battles or buy them, with prices for sets of orbs ranging from $1.99 to $74.99. They’re used to unlock hundreds of characters for a user’s party, but the catch is users don’t know ahead of time who they’ll get. Sometimes it’s a new character, other times a less-valued duplicate. Compare that with “Clash Royale,” a popular game made by Finnish developer Supercell Oy. That title also has hints of gacha but money is mostly used to eliminate wait times — a clearer payoff.

“In the West, gacha is often an add-on right now whereas in Japan, the mechanic is so important that developers need to carefully design and introduce gacha machines to keep the balance in their games,” said Toto.

If that makes gacha sound like gambling, that’s because in many ways it is. The word gacha — not to be confused with “gotcha” — is the sound Japanese vending machines make when dispensing toy capsules, whose contents cannot be seen prior to a purchase. In mobile games the practice has drawn ire in Japan, where five years ago the government banned a technique called “complete gacha” and any approach that manipulates gambling spirit.

That puts Nintendo in a precarious position. “Super Mario Run” didn’t use gacha to give parents a “peace of mind that kids can play it,” President Tatsumi Kimishima said in October. But the game still angered many fans who said the $10 price tag for higher levels was too expensive — and it disappointed financial analysts who said it didn’t make enough money.

Still, Toto doesn’t think “Fire Emblem” will provoke outrage because its appeal is likely more limited than “Super Mario Run” or “Pokemon Go.” The game, based on a franchise that dates back to the 1990s, is “very Japanese,” says Toto. That means foreign players unfamiliar with Japan’s game culture may be turned off by a dialogue-heavy game play and anime-style characters.

Investors may not mind too much because, with the gacha business model, what matters is not the number of players but how much each spends.

In Japan, studies have shown less than 10 percent of players account for more than 90 percent of revenue. Nintendo’s strategy in Japan is likely to focus on these so-called “whales,” selling them “Fire Emblem’s” nostalgic content wrapped in a gacha package.

In the West, potential for success is less clear. Some popular gacha titles like “Granblue Fantasy” are already available in English, but few have replicated the success they see in Japan or matched the popularity or profitability of Western games like “Candy Crush.” If Nintendo can pull it off, it would be a first. Either way, it’s a sign the company will be aggressive in trying to generate revenue from mobile.

“I was surprised to see Nintendo using a traditional gacha mechanic with their first free-to-play game,” Toto said.